Orbán wins in the economy and politics

08.12.2013

The results of spring elections seem to be sealed. The Hungarians may be getting ready for the next four years of the rule by Viktor Orbán and his System of National Cooperation. The Prime Minister’s support is growing, owing much to his own political skills, but also to the opposition, which does not pose a serious challenge to the ruling Hungarian Civic Union, Fidesz.

The new voting system favours large parties with a strong and stable social base. Yet, parties and organisations that are critical of the incumbent government have been unable to create a strong alliance covering a spectrum ranging from centre-left to centre-right, which would be a precondition for victory in the elections. Fragmented opposition stands no chance.

If the parliamentary elections were to be held today, the only question worth asking would be whether in the new, trimmed-by-half parliament Fidesz would win a two-thirds majority again. The agreement between the Hungarian Socialist Party (MSZP) and Together 2014-Dialogue for Hungary (Együtt–PM) alliance was focused more on the narrowing than widening of the coalition.

This sparked bitterness among other centre-left forces, especially among the followers of the controversial, albeit more and more popular, former Prime Minister and head of MSZP, Ferenc Gyurcsány. Együtt–PM is an alliance of Together 2014 led by Gordon Bajnai and several other smaller parties. In 2009-2010, Bajnai was an independent Prime Minister supported by the socialist wing. His cabinet stabilised the economy, pulled the country out of the financial crisis and after the 2010 elections, handed the power to Orbán.

Split opposition has no chance

Gyurcsány now leads the Democratic Coalition (Demokratikus Koalíció, DK), which moved up in the survey to match Gordon Bajnai and crossed the 5 per cent election threshold in November. On 23 October, during a joint manifestation of the opposition, Gyurcsány’s supporters, but not just them, shouted: “collaboration, collaboration” which showed the dissatisfaction with excluding the DK from the opposition alliance.

Fruitless discussion among Fidesz’s rivals on the subject of joining forces continues, which on the eve of the elections is grist to Orbán’s mill. This is evidenced by the November public survey run by Sonda Ipsos. Among Hungarians revealing their party preferences (and these constitute only 36 per cent of the electors) Fidesz enjoys a 51 per cent support, the socialist party has 26 per cent, the far right and anti-Semitic Jobbik (Movement for a Better Hungary) has 13 per cent, Együtt–PM has 4 per cent, DK has 3 per cent, and the green party has 2. The ratio of people demonstrating no party preferences has not changed and stands at 42 per cent.

Community services getting cheaper

Ahead of the elections, Viktor Orbán hopes not only for the ineptitude of the opposition. Over the year, the prices of gas, electricity, water, sewage, and even chimney services were reduced by the government in two stages by 20 per cent. The cuts came at the expense of providers. Some of them lost their profitability. At the same the government hinted that its final goal is to nationalise gas, electricity and other community services for citizens, which should become non-commercial and as cheap as possible.

All companies operating in this area have to itemise the amounts saved by customers since the introduction of price reductions in the bills issued every month. A special government regulation even specifies the content of such reports and provides details of layout such as the use of Arial font, of a particular size, and orange background, which – as it happens – is also the colour of Fidesz. One does not need to be an expert to associate such bills with elections leaflets. A new regulation is being prepared obliging housing cooperatives to notify residents of the changes in the cost of maintenance of communal areas in the wake of utility price reductions by putting up special notices. A special government plenipotentiary is in charge of a proper campaign promoting all the blessings of utility price reductions.

Hungarian papers emphasize that the campaign promoting price reductions concerning services of such vital importance for the populace hit the bull’s eye. The commentaries point out that Orbán will not stop wrestling with international energy corporations and will not stop warning that a possible victory of the opposition will lead (with Brussels’ blessing and knowledge) to new electricity or gas price hikes, since he is presumably the only one who can combat external pressures hostile to Hungarians and pauperising the already impoverished Magyars.

The opposition heavily criticises the nationalisation of community services and points to the danger of abandoning necessary investments in this area. The critics of governmental moves take relish scoffing and recalculating the bills for heating the home swimming pools of the Hungarian financial elite, but most of all emphasize that the proper and lasting solution would be to financially support insulation of buildings and replacement of windows, and to make other energy savings combined with subsidising utility costs for less affluent families.

The economy is growing and inflation is shrinking

Orban’s pre-election position is supported by recent macroeconomic data. The 1.7 per cent y/y of economic growth in Q3 2013 and the information that investment grew by as much as 9.8 per cent came as a pleasant surprise to the Hungarians. They were also very happy to see inflation drop to some 1 per cent, albeit without the reduction of utility prices the price growth index would have exceeded 3 per cent. Low inflation is also an effect of modest domestic demand and persistently low consumption.

The data on exports, balance of trade and balance of payments remain unchanged, which proves that the situation is good, predominantly owing to international companies operating in Hungary. Industrial output is growing through the automotive industry and earnings posted by Mercedes in Kecskemét and Audi in Győr. The central bank reduced the base rate 16 times in a row. The rate now stands at 3.2 per cent, and the effect is felt as intensified lending by commercial banks. SMEs are increasingly turning to cheaper funding made possible also thanks to free funds extended by the Magyar Nemzeti Bank, the national bank of Hungary, which designates them for commercial loans granted at a 2.5 per cent interest.

There is no danger in sight for this year’s budget, although this is not something to be overly proud of. In early November the Hungarian parliament increased the planned deficit for the eighth time this year. Thus, the negative balance grew from the original HUF 841.8bn to HUF 1,125.1bn. The difference between the budget at opening balance and closing balance is then HUF 284bn, i.e. the equivalent of 1 per cent of the GDP. According to a method counting in current expenditure, the deficit exceeds 3.5 per cent. Since the EU applies a method taking into account budget expenditure arisen in the year in which the cost originated, the deficit may be kept below 3 per cent.

The only government’s concern could be the tax fraud scandal. One of the former tax officers, András Horváth, after being dismissed, publicly declared that the tax office had been tolerating, and even covering up, a tax fraud scheme costing the Hungarian state an impressive HUF 1,000bn. The mechanism would involve a chain of companies, partially fictitious, running a fictitious sale and purchase of goods worth billions of forints. He claimed that several well-known multinational companies are involved, however, he has not named any yet.

Horváth’s revelations were confirmed anonymously by phone by another still active tax official. The anonymous official also revealed (which is the most embarrassing part for the government) that he notified prominent politicians of his discovery and wrote a long report, which he subsequently sent to the minister of economy, the leader of Fidesz parliamentary group as well as other politicians of the ruling party. There was no response. He also revealed that the described practices took place under the socialist government as well.

Fidesz is trying to discredit Horváth in government-sympathizing press, and its MPs prevented the formation of a parliamentary commission by not appearing at the voting session. The fact that the key opposition force, i.e. the socialist party, did not vote in favour of establishing such a commission makes one wonder. The socialists used the pretext of refusing to vote alongside the far-right Jobbik party. Independent papers claim that the scandal may decide the outcome of the next year’s elections.